Top ten tips for improving your debtors – Tip eight

 In Blog

In many businesses, the ability to manage cash flow is crucial to success and as a result of manual and repetitive processes, management of the debtors is often a ‘painful’ task.

The recent turbulent economic environment only adds to the headaches of a credit control team and the introduction of effective tools to improve the collections process is arguably more important today than at any time in recent history.

Effective credit control and query management should enable your business to;

  • Improve cash flow
  • Reduce debtor days
  • Increase customer service
  • Cut the cost of cash collection
  • Eliminate manual processes
  • Speed up the query resolution process

Cash Management – Cash to Pending and Direct Debits

Once the customer has agreed to pay, the administration of the receipting process and indeed the ease with which you can post, allocate and reconcile cash is another area where, if done effectively, gives the credit controller better visibility and more time to focus on chasing bad debt.

The vast majority of payments are via BACS with some cheques.  In both cases, the payment is accompanied by a remittance advice that confirms the amount of cash and lists the invoices that are being paid.  Most businesses do not recognise the cash until it has been reconciled on the bank statement and in the intervening time period the credit controller may not be aware that their customer has paid and hence continue to chase debt that has been settled.

Cash to pending is a means of eliminating this problem as well as offering fast and effective posting and allocation of cash.  Upon receipt of the remittance, the cash amount is entered against the customer account and the invoice numbers detailed on the remittance entered.  This creates an allocation session that is visible on the customer account but remains as pending.  The bank reconciliation process matches the entry of cash on the cash manager against the bank statement and as a result, releases the allocation session from pending to history.

An even more effective means of cash management is the use of direct debit functionality.  Often seen as unachievable, many customers will respond positively to an offer of settlement discount, extended payment terms or even a reduced invoice value, by agreeing to a direct debit mandate.  Given this, the system will generate a payment request letter, advising the customer of the total amount due and the invoices it will pay.  On the date of the direct debit, the cash is automatically posted on the customer’s account and automatically allocated against the relevant invoices.  No manual involvement, the ultimate credit control!  If only a small percentage of customers agree to pay by this means, it does reduce the work load on credit control.

Keep your eyes peeled for tip 9, coming soon!

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